25 Jan 18

Dear new CPO – why supplier management should feature in your 100 day plan

Dear new CPO – why supplier management should feature in your 100 day plan

Dear new CPO,

Congratulations on your new role. You may now be in the process of creating your 100 day plan; that is setting out what you are going to achieve and how you will make a difference in your new role.

Typically that first 100 days will involve:

  1. Learning the new business you are in, how it works, the key stakeholders, internal processes, establishing key relationships and working out what success will look like.
  2. Understanding the current procurement department and how it operates, normally this is done in four areas, people, processes, technology and strategy. Alongside these activities you will also doubtless be looking for an up to date spend analysis.
  3. Developing a strategy or roadmap for change for the four areas above and utilising the  spend analysis to drive a savings plan and targets to be implemented alongside the roadmap for change.
  4. Making a difference – doing something to establish your credentials and make your presence in the business felt. 

New CPO’s often focus on savings as their ‘make a difference’ priority, either by getting personally involved in some major deals the business is in the middle of and/or developing a series of savings opportunities driven by the spend analysis mentioned above.

But is this enough? We would argue that a savings plan is a hygiene factor for procurement and what the business expects from you, and is no different from what is traditionally expected from any procurement leader. Focusing only on cost savings in the first 100 days immediately positions you and the function as delivering tactical savings. While it might be welcomed (as savings always are) it will not show you have a broader understanding of the strategic needs of the business.

Supplier Management must be one of your first priorities as a new CPO

In the majority of organisations it is very clear procurement is responsible for sourcing, running RFPs, selecting new suppliers and putting deals and contracts in place with suppliers. From our research we’ve seen it’s still not clear who is responsible for supplier management. Witness the vendor management departments in IT or the lack of procurement involvement in supplier management in indirect areas such as marketing or professional services where significant spend and supplier risk reside.  

The first 100 days, allows you to very clearly position yourself and your department as the ‘owner’ of supplier management. To be clear, we are advocating that your procurement function should own the supplier management programme, processes, policies, tools, templates, technology and training. Ownership of the relationships themselves is less important providing the person responsible follows procurements lead.

Remember also, that ‘doing deals’ and strategic sourcing isn’t the only source of value that can be achieved in the first 100 days. In fact, our research has shown two key things:

  1. Between 30% and 50% of the value anticipated when deals are done doesn’t translate to the bottom line due to poor contract, performance and supplier management. This is a huge number for any procurement department to go after, however it is often difficult to make a business case to invest in this area as you’ve already counted the saving – unless of course, you are a new CPO in your first 100 days….
  2. SRM leaders are achieving 6%+ additional benefit over and above the contracted deal. So implementing good supplier management practices around the organisations key suppliers may well generate considerably more value in the form of savings and other value and in a quicker timeframe than going out to market through the traditional RFP route. It also has the added benefit of keeping internal stakeholders on-side as you’re not introducing the cost, risk and disruption that an approach to market and potential supplier changes represent, rather focusing on how you can improve how the current relationship. 

We understand the need to drive cost savings, however this is only one of the key areas of benefit that a procurement department can add value to the business. Supplier management adds value in three areas: risk, innovation and value. The danger of only focusing on cost reduction in the first 100 days is that you don’t show the business the other areas of strategic value you can bring. This risks you being positioned as a tactical ‘deal maker’, it will not earn you the right to be involved in the strategic business decisions.

Start by developing your business case

Implementing good supplier management is a business change programme, you’ll need investment as well as behaviour change in the wider business so using your first 100 days to help create the business case for change is key.

We would recommend that you run a Voice of the Supplier as soon as possible, this provides you with a view of how your suppliers perceive you as a customer and versus key competitors, that is, is the business a customer of choice? If not, what do you need to change to become one? This creates the business case for change and can be used to show business executives why change is needed.

We’d also recommend using the first 100 days to do some vital housekeeping such as understanding the state of your contracts database and develop a plan to cleanse this. Use a benchmark or diagnostic to understand how good you are at supplier performance, risk and relationship management to create a roadmap for change and to engage with senior stakeholders on what this journey will look like. This positions you strategically as the owners of supplier management within your business and allows you to have discussions with other functions about their supplier management activities right at the beginning of your tenure as CPO.

Congratulations again and good luck in your new role.

Learn more in the 2017 global SRM report Entrepreneurial SRM - ‘Solving the Value Puzzle’ were we discuss the choices facing today’s procurement leaders. To do what we’ve always done or, become the conduit for markets and suppliers contributing much more to the organisations strategic objectives. 

Download the 2017 SRM report